Markets in Financial Instruments Directive II …

1 Markets in Financial Instruments Directive II. ( mifid II) Level 2. ESMA's Technical Advice to the Commission on mifid II and MiFIR. February 2015. PwC 1. mifid II/MiFIR expected EU legal framework Number of documents expected specific requirements regarding the provision of investment services scope of exemptions from the current Directive organisational and conduct of business requirements for investment firms Directive organisational requirements for trading venues mifid authorisation and ongoing obligations applicable to providers of data services powers available to competent authorities sanctions Level rules applicable to third-country firms operating I via a branch disclosure of trade transparency data to the public and transaction data to authorities removing barriers to non-discriminatory access to clearing facilities Regulation the mandatory trading of derivatives on organised MiFIR venues specific supervisory actions on fin.

2 Instruments and positions in derivatives provision of services by third-country firms without a branch Expected on a range of topics to provide specifics Commission ( exemption - when an activity is provided in an 20 ( mifid II). Delegated acts incidental manner- , best execution factors, client 12 (MiFIR). order handling rules ). Expected on a range of topics to provide specifics ( timing and communication on suspension and Level Commission Implementing removal of FI from trading, standard forms for the 14 RTS ( mifid II). II Regulations exchange of information ). Adopted on the basis of ESMA implementing technical standards Expected on a range of topics to provide specifics Commission Delegated ( exemptions, best execution information ). 23 RTS ( mifid II). Regulations Adopted on the basis of ESMA regulatory technical standards Expected on a range of topics to provide specifics Level ( Assessment and supervision of cross selling ESMA 9 ( mifid II).)

3 Practices, assessment of Financial Instruments with 1 (MiFIR). III Guidelines a structure which makes it hard for the client to understand the risk involved ). PwC. 2. Final Report ESMA's Technical Advice to the Commission on mifid II and MiFIR. 19 December 2014 | ESMA /2014/1569. Date: 19 December 2014. ESMA/2014/1569. Table of Contents 1. Introduction _____ 10. 2. Investor protection _____ 12. Exemption from the applicability of mifid for persons providing an investment service in an incidental manner _____ 12. Investment advice and the use of distribution channels _____ 14. Compliance function _____ 16. Complaints-handling _____ 20. Record-keeping (other than recording of telephone conversations or other electronic communications)_____ 24. Recording of telephone conversations and electronic communications _____ 38. Product governance _____ 47. Safeguarding of client assets _____ 62. Conflicts of interest _____ 79.

4 Underwriting and placing conflicts of interest and provision of information to clients ___ 84. Remuneration _____ 96. Fair, clear and not misleading information _____ 100. Information to clients about investment advice and Financial Instruments _____ 104. Information to clients on costs and charges _____ 111. Annex : Identified costs that should form part of the costs to be disclosed to the clients 125. The legitimacy of inducements to be paid to/by a third person _____ 127. Investment advice on independent basis _____ 144. Suitability _____ 149. Appropriateness _____ 157. Client agreement _____ 162. Reporting to clients _____ 166. Best execution _____ 172. Client order-handling _____ 181. Transactions executed with eligible counterparties _____ 183. Product intervention _____ 187. 3. Transparency _____ 197. Liquid market for equity and equity-like Instruments _____ 197. Delineation between bonds, structured finance products and money market Instruments 215.

5 The definition of systematic internaliser _____ 220. Annex : Data analysis on systematic internalisation _____ 236. ESMA CS 60747 103 rue de Grenelle 75345 Paris Cedex 07 France Tel. +33 (0) 1 58 36 43 21 Transactions in several securities and orders subject to conditions other than the current market price _____ 238. Exceptional market circumstances and conditions for updating quotes _____ 242. Orders considerably exceeding the norm _____ 245. Prices falling within a public range close to market conditions _____ 247. Pre-trade transparency for systematic internalisers in non-equity Instruments _____ 249. 4. Data publication _____ 253. Access to systematic internalisers' quotes _____ 253. Publication of unexecuted client limit orders on shares traded on a venue _____ 261. Reasonable commercial basis (RCB) _____ 265. Annex : summary table of comparative advantages and disadvantages of options ____ 282.

6 Annex : Executive summary, Copenhagen Economics, Regulating access to and pricing of equity market data, 5 October 2012, revised 12 September 2013 _____ 283. Annex : Executive summary, Oxera, Pricing of market data services, January 2014 ___ 286. Annex : Reasonable Commercial Basis Accompanying assessment and data gathering exercise _____ 296. 5. Micro-structural issues _____ 318. Algorithmic and high frequency trading (HFT) _____ 318. Direct electronic access (DEA) _____ 340. 6. Requirements applying on and to trading venues _____ 345. SME Growth Markets _____ 345. Suspension and removal of Financial Instruments from trading _____ 370. Substantial importance of a trading venue in a host Member State _____ 377. Monitoring of compliance information requirements for trading venues _____ 381. Monitoring of compliance with the rules of the trading venue - deter-mining circumstances that trigger the requirement to inform about conduct that may indicate abusive behaviour387.

7 7. Commodity derivatives _____ 399. Financial Instruments definition - specifying Section C 6, 7 and 10 of Annex I of mifid II 399. Position reporting thresholds _____ 423. Position management powers of ESMA _____ 428. 8. Portfolio Compression _____ 440. 3. Acronyms and definitions used ABCP Asset-backed commercial paper ABS Asset-backed security ADR Alternative dispute resolution ADT Average daily turnover AIFMD Directive 2011/61/EU of the European Parliament and of the Coun- cil of 8 June 2011 on Alternative Investment Fund Managers (AIFMs). A-IOI Actionable indications of interest AMP Accepted market practice AOR Automated order routing APA Approved publication arrangement AVT Average value of transactions BIC Business Identifier Code. An 11-character alpha-numerical code that uniquely identifies a Financial or non- Financial institution. It is defined by ISO code 9362. BIS Bank for International Settlements CBO Collateralised bond obligation CDO Collateralised debt obligation CDS Credit default swap CEBS Committee of European Banking Supervisors CEIOPS Committee of European Insurance and Occupational Pensions Supervisors CESR Committee of European Securities Regulators CCP Central counterparty CFD Contract for difference CFI Classification of Financial Instruments CFTC Commodities Futures Trading Commission Class+ Class of OTC derivatives subject to the clearing obligation CLO Collateralised loan obligation CMBS Commercial mortgage backed security COFIA Classes of Financial instrument approach 4.

8 Coreper The Permanent Representatives Committee or Coreper (Article 240 of the Treaty on the Functioning of the European Union . TFEU). Commission European Commission CP Consultation Paper CRD IV Directive 2013/36/EU of the European Parliament and of the Coun- cil of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC. CRR Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012. CSD Central securities depositary CSF Cash settled forward CT Consolidated tape CTP Consolidated tape provider DA Delegated act to be adopted by the European Commission DEA Direct electronic access DP Discussion Paper EBA European Banking Authority EC European Commission ECB European Central Bank EEA European Economic Area EIOPA European Insurance and Occupational Pension Authority EMIR European market Infrastructures Regulation Regulation (EU).

9 648/2012 of the European Parliament and Council on OTC deriva- tives, central counterparties and trade repositories also referred to as the Regulation . EOD End of the day ESMA European Securities and Markets Authority ESMA Regulation Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Super- visory Authority (European Securities and Markets Authority), 5. amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC. ETD Exchange-traded derivative ETF Exchange-traded fund EU European Union FC Financial counterparty FCD Financial Collateral Directive Directive 2002/47/EC of the Euro- pean Parliament and the Council. FESCO Forum of European Securities Commissions FINRA Financial Industry Regulatory Authority FRA Forward rate agreement FSB Financial Stability Board FX Foreign exchange HFT High frequency trading ISIN International Securities Identification Number: a 12-character al- pha-numerical code that uniquely identifies a security.

10 It is defined by ISO code 6166. IBIA Instrument by instrument approach IOI Indication of interest IOSCO International Organisation of Securities Commissions IPO Initial public offering IRS Interest rate swap ISO International Organization for Standardization ITS Implementing Technical Standards KID Key information document KIID Key investor information document LEI Legal entity identifier LIS Large in scale LRIC Long-run incremental cost MAD Directive 2014/57/EU of the European Parliament and of the Coun- cil of 16 April 2014 on criminal sanctions for market abuse 6. MAR Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse ( market abuse regu- lation). mifid or mifid I Markets in Financial Instruments Directive Directive 2004/39/EC. of the European Parliament and the Council mifid II Directive 2014/65/EU of the European Parliament and of the Coun- cil on Markets in Financial Instruments and amending Directive 2002/92/EC and Directive 2011/61/EU.